MHP investment advice needed - management - Posted by Brian Woo

Posted by ray@lcorn on October 21, 2003 at 13:18:41:

Brian,

The book was shipped last Friday (10/17). Let me know if it doesn’t arrive in the next couple of days.

I love your deal. If the due diligence checks out you’ve found a bargain. If I were you I wouldn’t tell anyone where it is!

As to managing the property, a pure land lease park is a close as you can get to a hands free property other than triple net lease deals. And those are not going to give the return that this property will.

You have a couple of management options even though it is a small project. Normally I would say 53 lots is too small for fee management. But in this case the numbers can support it if it can be contracted at a reasonable rate, say 5-10% of gross revenue. For that amount I would expect them to perform all leasing and collection functions, payment of all regular invoices (utilities, etc.), prepare monthly reports of revenue and expense, and coordination of maintenance contracts. I would not authorize the manager to hire maintenance personnel without authorization. Fee managers typically charge a 10% fee added to the invoice, which leaves the door open to churning fees unless closely monitored. I prefer signing annual contracts for regular maintenance such as mowning, street cleaning, etc. direct with the contractors. A caveat: The number one complaint from real estate investors is about the performance of fee managers. As with any field, there are good ones and bad ones. If you decide to go this route be sure to thoroughly screen several firms. Back in February Marc Coan from Portland posted a great list of questions for management companies. The direct URL to the post is
http://www.creonline.com/commercial-real-estate/wwwboard5/messages/8065.html

Another option would be to engage a local CPA firm to collect rents and disburse funds to the utilities, and use someone in the park to coordinate any needed maintenance. Typically a MHP will have at least one or two long time residents who act like they are in charge anyway. These people can be invaluable in keeping abreast of what’s really happening in the park. No matter what type of management you eventually decide to use, you should take the time to find out who the long term residents are and make sure there is a (limited) line of communication between you. By limited I mean on your terms. What you don’t want is a phone call every time someone spins a tire in the gravel. I would not use a resident to collect rent. That situation almost always causes problems, whether of favoritism or revenge.

A third option is of course self management. I generally recommend anyone starting out in real estate to manage their own property for at least one year. This puts you in touch with the property, and gives you a knowledge base to judge any future manager. Knowing what it takes to manage a property is essential in knowing whether a person or firm you are paying for the service is really doing the job. A land lease MHP is a fairly simple operation. The rent payments can be mailed directly to you, and you can utilize process servers for collection notices or eviction orders, and annual contracts for routine maintenance. There aren’t that many bills to be paid, and they can easily be set up in bookkeeping software.

Any management option trades dollars for time, yours, and you have to balance the cost with the demands for both.

Hope that gives you some thoughts to ponder. Best of luck with your deal.

ray

MHP investment advice needed - management - Posted by Brian Woo

Posted by Brian Woo on October 21, 2003 at 01:22:53:

I am thinking of investing in a MHP - but have a few concerns : (I ordered Ray’s book but it hasn’t arrived yet)

  1. The park has 53 lots and all are land rents only - fully rented at the moment
  2. Gross rent about $95K - expenses $36K (don’t have all details on expense breakdown yet) - asking $410K

My concern is that it is 3.5 hours from where I live! I don’t want to deal with any day to day stuff and was hoping to pay someone (maybe in exchange for rent) that live at the park to handle the checks, deposits, etc.

Is it possible based on above numbers that I will only need to visit the place 3 or 4 times a year. Within my financial planning I am using this investment mainly as a consistent low risk savings vehicle - where I will be paying 100% cash for the property and will invest all the earnings toward retirement - it is one part of my retirement planning and plan to keep the park for 15 years or more. With a 400k MHP investment I am hoping to consistently save $4k to $5k every month toward retirement. From my real estate research MHP appears to be a good choice for my need.

Thanks, Brian.